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We have been covering the proxy war between Dan Loeb, CEO of Third Point Avenue, and the management of Yahoo Inc.!  (NASDAQ:YHOO) Loeb last week issued a demand for the management to fire the CEO and appoint three directors to the board, plus Loeb himself.

Loeb has been engaged in a battle with management for several months. He believes that the assets of the company are worth more then the current share price. Loeb has been attempting to unlock their value by shaking up management at the company, which he feels has been doing a poor job.

Currently, Dan Loeb’s funds’, own 5.8% of Yahoo Inc. shares. The stake is approximately $1billion, and as he has stated several times himself, he is the largest shareholder.

This afternoon, Yahoo Inc.! issued a press release, which likely will not be to Loeb’s satisfaction. Management named four directors directors, only one of whom was on Loeb’s list .

Yahoo  named John D. Hayes, the chief marketing officer of American Express Company (NYSE:AXP), Thomas J. McInerney, the former chief financial officer of IAC/InterActiveCorp (NASDAQ:IACI) and Peter Liguori the former chief operating officer of Discovery Communications Inc. (NASDAQ:DISCA) as new directors to the board.

“We have reconstituted the board of directors with the right mix of experience and expertise to help Yahoo build upon its very strong assets and brand base to take advantage of the opportunities ahead,” the Chairman of Yahoo! Inc. noted in the press release.

The fourth candidate, Harry Wilson, a restructuring specialist, was one of Loeb’s picks. Loeb likely will not agree to this proposal. Loeb wants a strong shakeup of management, and wants himself on the board as well. He thinks Yahoo! Inc. does not have enough board members with media experience.

Likely in an attempt to address that issue, the release noted (emphasis ours):

“Each of these individuals impressed the search committee with their demonstrable records of significant accomplishment at the highest levels of media, advertising and marketing, finance, including corporate finance and restructuring, and further insight into customers’ perspectives. Together, they bring a powerful mix of exactly the right ingredients to fuel Yahoo!’s forward momentum. Having thoroughly reviewed a broad range of highly qualified candidates and sought input from a number of major shareholders, the Committee enthusiastically recommended to the full Board the appointment of these three excellent directors.”

Yahoo! noted that they did want to avoid a costly and lengthy proxy battle, and that is why they agreed to nominate Harry Wilson. The company agreed to a fifth director, who would be to the satisfaction of both Dan Loeb and Yahoo!

Yahoo! originally had agreed to offer a seat to Dan Loeb on the board, but today backtracked, stating:

The Board remains open to hearing Third Point’s ideas and to working constructively with Third Point, but believes that appointing Mr. Loeb to the Board is not in the best interest of the Company and its shareholders.

Loeb rejected this proposal, according to the Yahoo statement.

He will therefore need to convince other shareholders to reject the offer. Yahoo Inc.! is the fourth most visited website according to Alexa Rankings. Loeb is one of the most famous value investors today, and his firm manages $8.9 billion.

ValueWalk will provide up to date coverage as the saga continues.